4G auction kept market competitive says NAO

By Edd Gent

Published Wednesday, March 12, 2014

An audit of Ofcom’s 4G spectrum auction found that it achieved its objective of keeping the UK market competitive.

In a report by of the National Audit Office to parliament, the comptroller and auditor general said last year’s auction had resulted in a well-balanced market after a total of seven bidders went head-to-head to acquire 250MHz of bandwidth in the 800MHz and 2.6GHz spectrum bands.

The four existing national operators – EE, Three, O2 and Vodafone – all won sufficient spectrum to ensure their medium-term viability and a new entrant, BT Niche, was also allocated a substantial holding.

The £2.4bn income from the sale was found to be within the range achieved in other European auctions, the NAO found, but the watchdog said it cannot yet conclude whether the auction was economically efficient.

According to the report, whether or not the auction succeeded in allocating spectrum to those who can make best use of it will start to become apparent only as the spectrum is brought into use by the winners.

Since the auction took place, all four of the existing mobile network operators have started to roll out 4G services, though EE was already allowed to offer 4G services from October 2012 using its existing spectrum.

The report acknowledges Ofcom’s decision to reserve part of the spectrum for the smallest operator, Three, or a new entrant who may not have been able to acquire the spectrum it needed to be an effective competitor in the market.

In the end, Three acquired this reserved spectrum through the auction and the Smith Institute calculated that the proceeds were £159m lower than they would have been had the spectrum not been reserved for it or new entrants to the market, assuming that bidders would have bid in the same way.

As well as raising £2.4bn, Ofcom estimates the auction will provide benefits for consumers estimated at £20bn.